Chandra and co-author Jonathan Skinner begin their investigation by developing a typology of health care medical technology productivity, ranging from low-cost high-return treatments – like anti-retroviral drugs for HIV patients – to higher-cost lower-return treatments – like the management of many chronicle diseases, including pneumonia, for which the value of hospital care is uncertain.

“Not surprisingly,” the authors write, “much of the improved health is generated by our first category of treatments, while much of the cost growth is generated by the [latter].”

Chandra and Skinner argue that the U.S. health care system lacks the structural incentives necessary to keep costs low and productivity high.

“It’s not technology per se that causes growth in health care expenditures – it’s the patients with full insurance coverage who demand the latest prosthetic hip. It’s the urologist who installs the latest 64-slice CT scanner in his office. Thus U.S. health care spending as a percentage of GDP has risen rapidly compared to other countries because the reimbursement system encourages the widespread diffusion of both old and new technology,” they write.

The authors also express skepticism that future productivity gains will keep pace with cost increases unless systemic changes are made.

“There is increasing evidence of the potential for cost-saving technologies (with equivalent or better outcomes) in the management and organization of health care to yield substantial productivity gains, Chandra and Skinner conclude. “But these types of innovations are unlikely to diffuse widely through the U.S. health care system until there are much stronger incentives to do so.”

Amitabh Chandra is an economist and a professor of public policy at Harvard Kennedy School. He is a Research Fellow at the IZA Institute in Bonn, Germany, and at the National Bureau of Economic Research (NBER). His research focuses on productivity and cost-growth in healthcare and racial disparities in healthcare.